I've written for Forbes since 1987. Over that time I've covered personal finance, taxes, retirement, nonprofits, scandals and other topics that interest me. I just published my debut novel, OFFSIDE: A Mystery. Email me at: wbarrett.forbes@gmail.com .

Tax Whistleblower Loses Dillon Fortune Case

After first ruling a tax whistleblower challenging a legendary fortune could sue after his tip was rejected, a U.S. Tax Court judge has dismissed the litigation, saying she lacks the authority to override Internal Revenue Service discretion when no money was collected.

Clarence Dillon

The litigation involves the estate of Dorothy Dillon Eweson, one of the two children of Clarence Dillion (1882-1979), a famous Wall Street financier credited with being an early advocate of leveraged buyouts. She died in 2005 at age 92, leaving behind a fortune estimate at $300 million.

In 2008 William Prentice Cooper III, a Nashville lawyer who is the boyfriend of the widow of an Eweson grandchild, filed two formal requests with the IRS’s new Whistleblower Office for an informant’s bounty. Mainly citing public records, he claimed the family avoided $100 million in estate taxes by ignoring a trust that Dillon set up in 1918 and by not paying the generation-skipping tax. The widow, Ann Peipers, claimed elsewhere that other heirs wrongly cut an inheritance for her minor son, an Eweson great-grandchild.

After Cooper got a form-letter rejection of his requests, he sued, asking that the IRS be ordered to conduct an investigation. (While obviously interested financially in the outcome, the secretive, very private Dillon family was not a named party. A spokesman has noted the Eweson estate tax return was accepted by the IRS.) Last July, in a surprise decision, U.S. Tax Court Judge Diane L. Kroupa ruled Congress gave the court the authority to hear Cooper’s lawsuits. “We find that our jurisdiction is not limited to the amount of an award determination but includes any determination to deny an award.”

But this week, Kroupa granted the IRS’s motion to dismiss the cases, using language that seems to repudiate much of her ruling last summer. “In a whistleblower action,” she wrote, “we have jurisdiction only with respect to the [IRS] Commissioner’s award determination. Our jurisdiction … does not contemplate that we redetermine the tax liability of the taxpayer.”

Her decision cited a lengthy internal memo, which the IRS provided Cooper after he filed suit, from Norman Wilson, an IRS estate attorney. “The memorandum summarizes the facts, legal analysis and legal conclusion for [the IRS's] denial of [Cooper's] claims,” Kroupa wrote. The IRS commissioner “has explained why he determined that there was no estate or gift tax due on the facts [Cooper] presented.”

Cooper, the judge wrote, may disagree with that decision, but under the law, there is no claim to a whistleblower award unless the IRS starts an administration or legal action. Moreover, “because a whistleblower award is calculated as a percentage of collected proceeds,” she declared, “if the [IRS] collects no proceeds there can be no whistleblower award.”

Reached at his home in Nashville on Tuesday, a terse Cooper said, “We are examining our options and will proceed in due course.” He declined to discuss the ruling at length, except to say that Congress, in passing a 2006 law to strengthen tax informant rights, should have vested judicial review with regular federal courts rather than the “limited jurisdiction” Tax Court.

That law, which established the IRS Whistleblower Office, specified a minimum 15% bounty for tips from tax informants. It came after complaints to Congress about how chintzy the IRS previous was in rewarding tipsters.

Since its passage, the IRS has been awash in big cases involving unpaid taxes, many of them focusing on U.S. taxpayers hiding assets in foreign accounts. Tipsters are thought to play a role in many of the cases. Probably the best known tax rat is Bradley C. Birkenfeld, who gave up Swiss bank UBS AG but is serving a 40-month sentence for helping but not turning in Orange County billionaire Igor Olenicoff. From his jail cell, Birkenfeld is pursuing a whistleblower claim that could be worth tens of millions of dollars.

Widely held to be one of the U.S.’s richest persons, Clarence Dillon died three years before publication of the first Forbes 400 list in 1982. His son, C. Douglas Dillon, a former U.S. Treasury Secretary, graced the first five Rich Lists but went off in 1987 when Forbes researchers gave half of his estimated $180 million fortune to Dorothy Eweson, whose estate led to this week’s Tax Court ruling.

Post Your Comment

Post Your Reply

Forbes writers have the ability to call out member comments they find particularly interesting. Called-out comments are highlighted across the Forbes network. You'll be notified if your comment is called out.